Westchester Sq vs DHS

NEW YORK (Reuters) - The city cannot enter into deals to open homeless shelters in apartment buildings without seeking approval from the comptroller's office, a New York state judge has ruled.

In a sharply worded decision, Bronx Supreme Court Justice Geoffrey Wright granted a motion by Comptroller John Liu for a declaration that the practice violated the city charter.

"In essence, the department of homeless services has made itself a little like a CIA block op, spending unbudgeted funds without apparent restraint," he wrote in a ruling dated May 31. "To accept their arguments would be to vitiate, if not annul the city charter."

A 2010 audit found that the city was operating more than 100 non-contracted facilities that cost a total of $153 million as of 2008. Wright's decision will force the city to seek Liu's approval to spend money on any non-contracted shelters, according to the comptroller's office.

"The practice of cutting backroom deals with shelter operators cannot and should not be tolerated," Liu said in a statement. "The administration should have put more effort into planning for housing for the homeless."

City legal sources said they disagreed with the comptroller's interpretation of the decision's scope.

In a statement, city lawyer Andrea Feller said, "We strongly disagree with this characterization of an agency dedicated to serving homeless men, women and children.... The city is the safety net for those without a housing alternative, and we will weigh an appeal of this decision."

The lawsuit was filed in 2009 when the city opened a 39-unit shelter in a luxury apartment building on St. Peter's Avenue in the Bronx. The plaintiffs, which included business owners and other community members, faulted the city for failing to notify the community and hold a hearing, arguments that the judge eventually rejected.

The then comptroller William Thompson, however, filed as an intervenor later that year, arguing that the city failed to comply with procurement provisions in the charter that call for any contract using city funds to be approved by the comptroller.

The city argued that the shelter was installed on an emergency basis given a homelessness crisis and thus did not require approval.

The judge disagreed, saying the comptroller had "cogently set forth a viable procedure already in existence for emergency procurement."

The city also claimed that the procurement requirements only apply to contracts that provide "services" and that providing housing does not constitute a service.

Wright said that argument amounted to unpersuasive hair-splitting.

The case is The Westchester Square/Zerega Improvement Organization v. Seth Diamond, New York State Supreme Court, Bronx County, No. 260573/2009.

For the comptroller: Jim Walden of Gibson Dunn.

For the city: Andrea Feller, Chris Reo and Sarah Kogel-Smucker of the New York City Law Department.